Fiduciary facts: recent regs, court case shed light on important topic.

• Author: Framson, Joel H.
• Position: Professional advisory

Breach of fiduciary duly has been an important subject of late because of Department of Labor regulations and a recent court case. This article will explore issues that CPAs must be aware of in their role as trusted professional advisers. There are at least three situations where being aware of the laws and regulations pertaining to fiduciary duty relating to investments are crucial:

1. When you do not act as an investment adviser, but you have clients who are trustees of retirement plans or have established 401(k) plans for their employees.

2. You have your own firm 401(k) or retirement plan, or you are in a fiduciary relationship with your clients with respect to such plans.

3. You either are a registered investment adviser with an investment license under a broker-dealer, or give investment advice to your clients that is not "incidental" to your role as their CPA.

   For our purposes, the term fiduciary can be divided into two groups:

   * Investment adviser: A person responsible for managing comprehensive and continuous investment decisions (wealth managers, financial advisers, trust officers, financial consultants, financial planners and fiduciary advisers).

   * Investment stewards: A person who has the legal responsibility for managing investment decisions (trustees and investment committee members).

   A fiduciary relationship is generally considered to be the highest standard of customer care available under the law. Many different types of professions owe a fiduciary duty to someone; for example, lawyers to their clients and trustees to beneficiaries. For investment advisers, the duty comes not from the SEC, but from common law.

   The Investment Advisers Act of 1940 does not use the word "fiduciary" and it does not appear in the Act. You may wonder why the concept of fiduciary duty came to be applied to advisers. In fact, it was the Supreme Court that recognized congressional intent and held that the Act: "reflects a congressional recognition of the delicate fiduciary nature of an investment advisory relationship, as well as congressional intent to eliminate, or at least to expose, all conflicts of interest which might incline an investment adviser--consciously or unconsciously--to render advice which was not disinterested."

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   From this legal backdrop, the SEC does mandate that advisers are fiduciaries, and provides this guidance: "As an investment adviser, you are a fiduciary to your advisory clients. This means that you have...